Washington State’s Bills Address Misclassification and the Underground Economy

2/18/2015 10 Considerations in Choosing a Freight Audit and Payment Provider


In January, members of the Washington State House of Representatives and Senate introduced bills in both chambers to reduce the misclassification of employees as independent contractors. These bills are in keeping with Washington state’s participation in the US Department of Labor’s Employee Misclassification Initiative. The USDOL Initiative began in May 2011, offering competitive grants to states to support labor-law enforcement, and Washington joined in September 2011. The purpose of the effort to reduce employee misclassification serves both to improve compliance with federal law, and increase tax receipts at the state and federal levels.

Scenario #1: All three of these provisions are true Scenario #2: All ten of these provisions are true

1. The individual is and will continue to be free from control or direction over the performance of the labor or services by the party for whom the labor or services are performed, both under the contract of labor or service and in practice. Control or direction includes the right to control or direct as well as general control or direction over the individual's physical activities;

2. The labor or service is either outside the usual course of business for which the labor or service is performed, or the labor or service is performed outside of all the places of business of the enterprise for which the labor or service is performed; and

3. The individual is customarily engaged in an independently established trade, occupation, business, or profession of the same nature as that involved in the contract of labor or service.                                                                                                                                                                                                                                                                                               

1. The individual is and will continue to be free from control or direction over the performance of the labor or services by the party for whom the labor or services are performed, both under the contract of labor or service and in fact. Control or direction includes the right to control or direct as well as general control or direction over the individual's physical activities;

2. The individual's business is not financially dependent on the relationship with the party for whom the labor or services are performed and the business continues after the cancellation or destruction of the relationship with that party;

3. The individual has a substantial investment of capital in the individual's business beyond ordinary tools and equipment and a personal vehicle;

4. The individual gains profits and bears losses from the business as a result of his or her managerial skills and substantial investment of capital in the individual's business; 5. The individual makes his or her labor or services available to the general public or the business community on a continuing basis;

6. The individual files at the next applicable filing period, both under the contract of service and in fact, a schedule of expenses with the internal revenue service for the type of business the individual is conducting;

7. The party for whom the labor or services are performed does not represent the individual as an employee of that party to its customers;

8. The individual has the right, under contract and in fact, to perform similar labor or services for others on whatever basis and whenever he or she chooses;

9. The individual has an active and valid certificate of registration with the department of revenue and an active and valid account with any other state agencies as required by the particular case, for the business the individual is conducting for the payment of all state taxes normally paid by employers and businesses and has registered for and received a unified business identifier number from the state of Washington; and

10. The individual is maintaining a separate set of books or records that reflect all items of income and expenses of the business that the individual is conducting.

 

Labor law and regulations are complex, vary from state to state, and are critically important for TIA’s many members to be familiar with as they grow their companies. To help, TIA will continue to update its Fair Labor Standards Act Framework and provide other updates and information on these topics. The Framework provides suggestions for best practices to ensure compliance and help provide direction. However, no framework is a substitute for legal counsel. If you have any questions about current or pending regulations or suggestions on how to better serve members on this issue, please contact Will Sehestedt at sehestedt@tianet.org, 703-299-5713.